What is a blue-chip stock?

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A blue-chip stock is stock in a company with a reputation for consistent earnings and stability. Though it is a general term, it is often used to describe the 30 companies that form the Dow Jones Industrial Average.

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The label "blue chip" is likely associated with the highest-value poker chip. In addition to consistent earnings, blue-chip stocks often pay dividends to shareholders. Though they do present investment risks, they are generally regarded as safer and more conservative relative to more volatile equities. Stock market crashes, such as the major ones in 1929 and 1987, are typically defined by steep drops in blue-chip stocks.